5 Stocks Insiders Love Right Now - views

WINDERMERE, Fla. (Stockpickr) -- Corporate insiders sell their own companies’ stock for a number of reasons.

They might need the cash for a big personal purchase such as a new house or yacht, or they might need the cash to fund a charity. Sometimes they sell as part of a planned selling program that they have put in place for diversification purposes, which allows them to sell stock in stages instead of selling all at one price.

Other times they sell because they think their stock is overvalued and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge that a competitor is eating their lunch and stealing market share.

But insiders usually buy their own shares for one reason: They think the stock is a bargain and has tremendous upside.

The key word in that last statement is “think.” Just because a corporate insider thinks his or her stock is going to trade higher, that doesn’t mean it will play out that way. Insiders can have all the conviction in the world that their stock is a buy, but if the market doesn’t agree with them, the stock could end up going nowhere. Also, I say “usually” because sometimes insiders are loaned money by the company to buy their own stock. Those loans are often sweetheart deals and shouldn’t be viewed as organic insider buying.

At the end of the day, its large institutional money managers running big mutual funds and hedge funds that drive stock prices, not insiders. That said, many of these savvy stock operators will follow insider buying activity when they agree with the insider that the stock is undervalued and has upside potential. This is why it’s so important to always be monitoring insider activity, but it’s twice as important to make sure the trend of the stock coincides with the insider buying.

Recently, a number of companies’ corporate insiders have bought large amounts of stock. These insiders are finding some value in the market, which warrants a closer look at these stocks.

One health care facilities player that insiders are loading up on here is Davita (DVA), a provider of dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease. Insiders are buying this stock into some solid strength here, since shares are up over 35% so far in 2012.

Davita has a market cap of $9.9 billion and an enterprise value of $14.09 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 19.22 and a forward price-to-earnings of 15.28. Its estimated growth rate for this year is 22.4%, and for next year it’s pegged at 11.9%. This is not a cash-rich company, since the total cash position on its balance sheet is $282.07 million and its total debt is a whopping $4.52 billion.

From a technical perspective, DVA is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares soaring from a low of $77.81 to its recent high of $105.73 a share. During that uptrend, shares of DVA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has how pushed DVA into range of triggering a near-term breakout trade.

If you’re bullish on DVA, then I would look for long-biased trades once it breaks out above some near-term overhead resistance at $105.73 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 698,102 shares. If that breakout triggers soon, then DVA will have a chance of trading up to $110 to $120 a share. Keep in mind that any move above $105.73 will push DVA into new 52-week-high territory, which is bullish technical price action.

Another stock that insiders are jumping into here is Contango Oil & Gas (MCF), explores, develops, produces and acquires natural gas and oil properties mainly offshore in the Gulf of Mexico. Insiders are buying this stock into some notable weakness here, since shares are down by 16% in the last six months.

Contango Oil & Gas has a market cap of $769.34 million and an enterprise value of $646.87 million. This stock trades at a fair valuation, with a price-to-sales of 4.43 and a price-to-book of 1.67. This is a cash-rich company, since the total cash position on its balance sheet is $129.98 million and its total debt is zero.

From a technical perspective, MCF is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock was hammered by the sellers during the last two months, with shares dropping from $61 to its recent low of $48.83 a share. During that sharp move lower, shares of MCF have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of MCF have now entered oversold territory, since its current relative strength index reading is 35.93.

If you’re in the bull camp on MCF, then I would look for long-biased trades once it manages to break out above some near-term overhead resistance at $52 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 81,857 shares. If that breakout triggers soon, then MCF could bounce off oversold levels back towards its 50-day moving average of $55.80 a share.

Republic Services

Another stock that insiders are very active in here is Republic Services (RSG), a provider of services in the domestic non-hazardous solid waste industry. Insiders are buying this stock into modest weakness here, since shares are down by around 10% in the last six months.

Republic Services has a market cap of $10.08 billion and an enterprise value of $17.05 billion. This stock trades at a reasonable valuation, with a trailing price-to-earnings of 15.18 and a forward price-to-earnings of 13.39. Its estimated growth rate for this year is -2.6%, and for next year it’s pegged at 7.9%. This is far from a cash-rich company, since the total cash position on its balance sheet is $69.30 million and its total debt is a whopping $7.11 billion.

From a technical perspective, RSG is currently trading above below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a sideways trading pattern for the last two months and change, with shares moving between $28.97 on the upside and $27.03 on the downside. A move outside of that trading pattern will likely setup the next major trend for RSG.

If you‘re bullish on RSG, then I would look for long-biased trades once it manages to break out above some near-term overhead resistance at $27.95 to $28.97 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 2,393,390 shares. If that breakout triggers soon, then RSG will have a great chance of re-testing or possibly taking out its next major overhead resistance level at $30.78 a share. Keep in mind that any move above $27.74 to $27.94 a share will push RSG back above both 200-day and 50-day moving averages, which is bullish price action.

One can look to buy RSG off any weakness to anticipate that breakout, and simply use a stop that sits just below some near-term support levels at $27.09 to $27.03 share. If buy off weakness, then I would add to the position once RSG starts to clear $27.95 to $28.66 a share with high volume, and then add again above $28.97 a share.

Horizon Pharma

Another stock that insiders are finding attractive here is biotechnology and drugs player Horizon Pharma (HZNP), which develops and commercializes medicines to target unmet therapeutic needs in arthritis, pain and inflammatory diseases. Insiders are sniffing out some deep value here, since shares are down by a whopping 60% in the last three months.
MP/>Horizon Pharma has a market cap of $107.44 million and an enterprise value of $100.17 million. This stock trades at a fair valuation, with a price-to-sales of 11.07 and a price-to-book of 1.94. Its estimated growth rate for this year is -22.7%, and for next year it’s pegged at 48.3%. This is barley a cash-rich company, since the total cash position on its balance sheet is $63.46 million and its total debt is $51.12 million.

From a technical perspective, HZNP is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been destroyed by the sellers during the last three months, with shares plunging from its high of $8.72 to its recent low of $3.15 a share.

During that sharp move lower, shares of HZNP have been consistently making lower highs and lower lows, which is bearish technical price action. This stock also recently gapped down from around $4.50 to $3.50 a share with heavy volume.

If you’re in the bull camp on HZNP, then I would only look for long-biased trades if it can manage to break out above some near-term overhead resistance at $3.53 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 1.3 million shares. If we get that breakout soon, then HZNP could re-fill that gap from September that started near $4.50 a share.

Agco

One more stock that has seen some decent insider buying is Agco (AGCO), which sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment and implements. It also manufactures and distributes grain storage and handling equipment systems, as well as protein production systems. Insiders are buying this stock into some modest strength here, since shares are up around 9% so far in 2012.

Agco has a market cap of $4.56 billion and an enterprise value of $5.75 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 6.63 and a forward price-to-earnings of 8.13. Its estimated growth rate for this year is 27.5%, and for next year it’s pegged at 1.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $393.40 million and its total debt is $1.53 billion.

From a technical perspective, AGCO is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been trading sideways for the last couple of weeks, with shares moving between $45.10 on the downside and $48 a share on the upside. A move outside of that range will likely setup the next major trend for AGCO.

If you’re bullish on AGCO, then I would look for long-biased trades once it manages to break out above some near-term overhead resistance levels at $47.97 to $45 a share with high volume. Look for a sustained move or close above those levels with volume that hits close to or above its three-month average action of 1.2 million shares. If that breakout triggers soon, then look for AGCO to re-test or possibly take out its next major overhead resistance levels at $51.25 to $52.37 a share.

One can look to buy AGCO off any weakness to anticipate that breakout, and simply use a stop that sits right around its 50-day moving average of $44.52 a share.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.